The latest Commercial Real Estate Sentiment tracker from Origin Capital has been completed by 240 industry professionals. Common risks identified for the sector over the next three months include the fallout from the Brexit result, the US election result, market/ political uncertainty and a lack of funding. In terms of opportunities, interestingly Brexit is the most commonly cited factor, with other opportunities including general economic growth, and the potential for both commercial and residential development.
More specifically, over the next three months, respondents had the following expectations for the market:
- 64% expect CRE rents to increase (33% predict no change and 3% predict a decline)
- 46% expect the number of CRE transactions in the market to increase (29% predict no change and 25% predict a decline)
- 48% expect the price of CRE transactions to increase (38% predict no change and 14% predict a decline)
- 68% believe it is likely that new CRE funders will enter the market (13% believe it is neither likely nor unlikely, and 19% believe it is unlikely)
Interestingly, the results above do not vary significantly from those recorded before Brexit (in May 2016), suggesting that although many respondents perceive Brexit to be a significant risk to the sector over the next three months, it is not yet impacting their expectations for the metrics outlined above.
Other key findings from the survey include:
- 87% of respondents believe that the level of funding being provided by traditional banking institutions in the CRE sector is not sufficient to meet the needs of the market (13% believe it is sufficient)
- 61% of respondents believe the UK will ultimately opt for a ‘Soft Brexit’ (22% believe they will opt for a ‘Hard Brexit’, while 17% believe Brexit won’t happen at all)
- If Brexit does happen, 52% believe that it will have a positive impact on the Irish CRE market (38% believe there will be a negative impact, while 10% believe there will be no impact at all)
- 50% of respondents believe the recent budget will have a neutral impact on the Irish CRE market. 23% believe there will be a positive impact on the market, while 27% believe there will be a negative impact
- With regard to the recently announced help-to-buy scheme for first time buyers, 46% of respondents believe the measures will increase house prices but not supply. 43% believe they will increase both house prices and supply. A small number (4%) believe the measures will increase supply but not house prices, while 7% believe the measures will have no impact on either house prices or supply.
- 63% of respondents believe that the recently announced changes to the Central Bank mortgage regulations will have a positive impact on the housing market. 32% believe the changes will have no impact, while 5% predict a negative market impact.
- 80% of respondents believe the proposed 20% tax on overseas property funds will damage the recovering commercial property market (14% believe there will be no impact and 6% believe there will be a negative market impact.
Commenting on the results, Ross Metcalfe, CEO of Origin Capital stated ‘The results from the latest Origin Capital CRE sentiment tracker show that Brexit is very much on the minds of respondents within the industry, however it is interesting that it is seen as both a significant risk and a significant opportunity for the sector. The results also show that respondents believe a number of other factors will have an impact on the industry, including the US election result, and more local factors including a lack of funding, the proposed tax on overseas property funds, the first-time buyers scheme, and changes to the Central Bank mortgage regulations’.
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Origin Capital provides senior debt commercial property finance in the Irish market for investment deals in excess of €3m, and has credit approved over €180m of transactions in the Irish market. Origin Capital recently announced a funding agreement with Morgan Stanley which will allow the company to provide funding for CRE projects across a wide variety of asset classes, and also to compete for significantly larger transactions. For more information please visit www.origincapital.ie.
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